ALBUQUERQUE—Consumers
will lose valuable rights on October 28 when Check 21, a new federal banking
law designed to save banks money and time in the check clearing process, takes
effect. Under this new law, consumers will no longer be able to request that
their canceled checks be returned with their monthly statements. Banks will
instead process all checks electronically by converting paper checks into electronic
images and provide consumers only with paper versions of the electronic image.
“While Check 21 allows
banks to clear the checks we write to others faster, it doesn’t require
banks to give us quicker access to the checks we deposit,” said NMPIRG
consumer advocate Ray Prushnok. “That means big bounced check problems
for consumers and big bounced check fee income for banks.”
Prushnok noted that NMPIRG
and other consumer groups have never encouraged consumers to write checks on
funds that they do not have, but warned that, “Increasingly, banks are
gaming the system to encourage unintentional overdrafts that result in skyrocketing
fee income. Check 21 will only make that unfair game easier for banks to play.”
In addition to its shortening
of the float time on checks consumers write, NMPIRG pointed out the other impacts
of the new law: First, Check 21 requires banks to convert checks to digital
images or pictures. While consumers can continue to receive these images instead
of cancelled checks, not all images are legally equivalent to a cancelled check
in a dispute.
Second, banks may charge
extra fees to receive a special kind of copy of the check (called a “substitute
check”) that is legally equivalent to the original cancelled check and
which triggers an important new consumer right.
“The only way consumers
will know if there is a problem with their accounts is to read their statements
carefully and check everything that is returned with the statement,” added
Prushnok. “Consumers should remember that all copies are not created equal,
and that they have to specifically ask for a substitute check—not merely
a copy—to legally resolve any dispute with a merchant or creditor.”
“When you use your
debit card at a merchant or when a merchant converts a check at point of sale
to an electronic transfer, you have a legal ten business day right of recredit
in any dispute,” said Prushnok, “But when you have a dispute over
a check that you’ve written, for example, if the check is paid twice, paid
for the wrong amount, or otherwise paid in error, you will not have that same
10 business day right of re-credit unless you have received a substitute check.”
NMPIRG recommended that
consumers take several steps to inform and protect themselves from the new law:
- Only write the check
if the funds are in the bank. With the use of new electronic images, banks
may process a check within hours of when it was written; negating the “float
time” many consumers have taken advantage of. This will likely lead to
more bounced checks and overdraft fees.
- Know and understand
what “substitute checks” are. Under Check 21, the only legal substitute
for a cancelled check is a substitute check. A substitute check is a paper copy
of an electronic image of your cancelled check. Not all images provided by banks
are legally the same as substitute checks. So ask for substitute checks. Substitute
checks are required in any dispute to start a ten business day timetable for
a bank to fix any errors in payment of a check from a consumer’s account.
NMPIRG advises consumers to contact their bank and inquire whether or not they
will be charged a fee to obtain a substitute check.
- Consumers should carefully
examine all bank statements. Since paper checks will be scanned into an
electronic image, there is a chance that the bank may double-debit a customer’s
account, posting both the original check and its electronic copy. Another problem
could occur during the transfer from paper to electronic file if the amount
written on the check is misread.
NMPIRG recommends that consumers
carefully track all written checks and take the time to read their bank’s
monthly statement to insure that no bank errors occurred. If an error has occurred,
they should notify their bank and obtain a substitute check from their bank
immediately in order to prove the error.
- Consumers have the
right under Check 21 for a re-credit within ten days of the mistake being made.
In order for a re-credit to occur they must first obtain a substitute check.
“New technology and
new laws should benefit consumers as well as the banks,” concluded Prushnok.
“We’ll be watching this new law closely to make sure that the banks
don’t take advantage of consumers.”
